How Stories Go Viral & Drive Major Economic Events

By Robert J. Schiller

Preface

• Contagion is strongest when people feel a personal tie to an individual in or at the root of the story, whether a stock personality type or a real celebrity
• Celebrities sometimes concoct their own narratives, as in the case of Trump, but in many cases the celebrity’s name is merely added to an older, weaker narrative to increase its contagion - as in the story of the self-made man told many times over, each with a different celebrity
• Narrative economics demonstrates how popular stories change through time to affect economic outcomes, including not only recessions and depressions, but also other important economic phenomena. The idea that house prices can only go up attaches to the stories of rich house flippers seen on television. The idea that gold is the safest investment attaches to stories of war and depression. These narratives have a contagious element, even if their attachment to any given celebrity is tenuous.
• To understand a complex economy, we have to take into account many conflicting popular narratives and ideas relevant to economic decisions, whether the ideas are valid or fallacious

Part 1: The Beginnings of Narrative Economics

The Bitcoin Narrative

• Both cryptocurrencies and blockchains (the accounting systems for the cryptocurrencies, which are by design maintained democratically and anonymously by large numbers of individuals and supposedly beyond the regulation of any government) seem to have great emotional appeal for some people, kindling deep feelings about their position and role in society. The Bitcoin story is especially resonant because it provides a counternarrative to the older antianarchist narratives depicting anarchists as bomb-throwing lunatics whose vision for society can lead only to chaos and violence. Bitcoin is a contagious counternarrative because it exemplifies the impressive inventions that a free, anarchist society would eventually develop.
• The repeated publicity for an intriguing mystery (Satoshi) made the contagion rate of the Bitcoin narrative higher than it would have been otherwise
• Bitcoin is also a story of the desire for economic empowerment and of computers taking greater and greater control of people’s lives
• People often buy Bitcoin because they want to be part of something exciting and new, and they want to learn from the experience. This motivation is particularly strong because of the underlying story, the narrative that computers are poised to replace many of our jobs.
• This “Be a part of the future” narrative, enhanced by regular news of exciting fluctuations in the price of Bitcoins, gives them value. It generates fluctuations in Bitcoin prices in terms of national currencies, and these fluctuations thrive on and produce contagious narratives.
• In the end, people are interested in Bitcoin precisely because so many other people are interested in it

An Adventure in Consilience

• Consilience - the unity of knowledge among the differing academic disciplines, especially between the sciences and the humanities
• In the social sciences, the last half-century saw the blossoming of schools of thought that emphasize the study of popular narratives…The overriding theme is that most people have little or nothing to say if you ask them to explain their objectives or philosophy of life, but they brighten at the opportunity to tell personal stories, which then reveal their values.
• Contagious narratives often function as metaphors. That is, they suggest some idea, mechanism, or purpose not even mentioned in the story, and the story becomes in effect a name for it. The human brain tends to organize around metaphors. For example, we freely incorporate war metaphors in our speech. We say an argument was “shot down” or is “indefensible.” The human brain notices these words’ connection to war narratives, although the connection is not always a conscious one.